August is usually a quiet month for mergers and acquisitions. But not this August! As the linked Independent article below states:
Korea National Oil Corporation’s £1.87bn hostile bid for Dana Petroleum yesterday was just the latest in a surge of activity taking merger and acquisition (M&A) levels to a nine-month high.
Despite edgy economic data from the US, global deal-making has already topped $197bn (£127bn) so far this month, and is on course to beat the August record of $260bn set in 2006, according to Thomson Reuters. This week’s $89.8bn total is the highest weekly total since early November.
During the global recession of 2008/9, M&A activity slumped. In 2007, global M&As were worth $4162bn. In 2009 they were worth only $2059bn. Not only were companies cautious of acquiring other companies in a period of great economic uncertainty, but finance for deals was hard to obtain. Now, with many companies having cut costs and having much healthier balance sheets, they are in a position to bid for other companies. And banks too are much more able and willing to provide the finance to support takeovers.
So does this signify a continuing surge in M&A activity? Or are the August figures likely to be a ‘blip’, with fears of a double-dip recession dampening any renewed takeover fever? The articles below look at the recent cases and at the factors influencing current M&A activity.
Articles
Stock markets catch deal fever as M&A booms again Independent, Sarah Arnott (21/8/10)
BHP, Intel, RSA shatter usual August M&A lull Reuters, Quentin Webb (20/8/10)
Global M&A volume could be highest in August International Business Times, Surojit Chatterjee (21/8/10)
Mergers and acquisitions mania disrupts bankers’ summer breaks Guardian, Elena Moya (21/8/10)
Merger mania predicted as cash-rich firms stalk takeover targets Observer, Richard Wachman (22/8/10)
M&A Signal Higher Stock Prices Ahead Minyanville, Terry Woo (20/8/10)
From slowest to busiest TodayOnline (21/8/10)
Data and Reports
International
The era of globalized M&A: Winds of change Thomson Retuers and J.P.Morgan (June 2009)
Preliminary M&A Financial Press Release 2Q10 Thomson Reuters (25/6/10)
World Investment Report 2010: Annex Tables United Nations Conference on Trade and Development (UNCTAD) (see tables 9–16)
UK data
Mergers and Acquisitions involving UK companies Office for National Statistics
Mergers & Acquisitions data Office for National Statistics
Mergers and acquisitions involving UK companies: 1st Quarter 2010 Office for National Statistics (2/6/10)
Mergers and Acquisitions Tables Office for National Statistics
Questions
- Identify the reasons why firms want to take over other firms.
- Why does M&A activity tend to increase during a period of economic boom and decline during a recession?
- What is likely to happen to M&A activity over the coming months?
- Exmamine two recent mergers or acquistions and explain why the acquiring company was keen to take over the other company, or why the two companies were keen to merge. Were there any economies of scale to be gained? Would the merger increase the acquiring company’s market power?